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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: mishedlo who wrote (36509)	7/21/2005 4:53:03 PM
From: futures speculator	Read Replies (1) of 110194

Wrt VIX, Mish what I'm saying is that the 20yr lows in VIX, means that 'portfolio insurance' is the cheapest in 20yr. There are people, like 'Black Swan' 'Fooled by Randomness' Nassim Taleb, who would buy such options "on the cheap" and profit on it. But people seem to think that the Fed is providing a floor under equities (and with good reasons: please look at the massive, 7 in 40 days, coupon-passes in April, that reversed the drop of Dow from 11k to 10k). Coupon-pass = creation of permanent money (highest powered money, also called supermoney) by Fed. So demand for insurance dropped (Taleb closed his fund and returned money to investors a few months ago). And insurance sellers (option writers) demand much smaller premium. I notice that many option writers are among the 100 best funds in IASG catalog. But I think VIX <10 is the result of the "moral hazard" (Fed/PPT stepping into to prevent any meaningful decline). Rather than investors considering that the "frothy" valuations + geopolitical situation etc nowadays have less risk than any other time during the last 20yr.

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